A pip stands for “
percentage in point” or “
price interest point.” It’s a standard way traders measure price movement in a currency pair.
In most currency pairs, one pip equals
0.0001. That’s the fourth decimal place. For example, if the price of EUR/USD moves from 1.1050 to 1.1051, it moved
one pip.
But in some pairs like the Japanese yen (JPY), the price only goes to two decimal places. So for USD/JPY, one pip equals 0.01 instead of 0.0001.
This small measurement helps traders keep track of tiny price changes that can add up during a trade.
Most of the time, when you look at a
currency pair's price, you'll see it listed with four numbers after the decimal point. For example, the Euro to U.S. Dollar pair (EUR/USD) might be priced at 1.0750. A
forex pip is usually the very last number in that price.
Let’s say you buy the EUR/USD pair at 1.2000. Later, the price rises to 1.2020. That’s a 20-pip increase. If you traded a large enough amount, those 20 pips could be worth real money, either as a profit or a loss.
So when traders talk about gains or losses, they often say things like:
“I made 50 pips on that trade,” or
“That trade lost me 15 pips.”
Pips in forex trading are a simple way to measure how far a currency price has moved.
Let’s walk through a quick example. You’re trading EUR/USD.
- Entry price: 1.1000
- Exit price: 1.1025
That’s a 25-pip move. Now, what does that mean in money? That depends on how much you’re trading, your lot size.
- Standard lot (100,000 units): 1 pip ≈ $10
- Mini lot (10,000 units): 1 pip ≈ $1
- Micro lot (1,000 units): 1 pip ≈ $0.10
So, if you trade a mini lot and gain 25 pips, you make around $25. But if you lose 25 pips, that’s a $25 loss.
A pip (short for "percentage in point") may seem small, but it plays a big role in your profits and losses. Understanding how much a pip is worth in real money helps you manage risk and plan trades wisely.
The
monetary value of a pip depends on:
- Currency Pair – Especially whether USD is the quote or base currency
- Lot Size – Standard, mini, or micro
- Exchange Rate – Live rates impact pip value, especially in non-USD pairs
For most currency pairs where the U.S. Dollar (USD) is the
quote currency (the second one in the pair, like EUR/USD or GBP/USD), the value of one pip is usually straightforward:
Standard Lot (100,000 units of the base currency): For a standard lot, how much is 1 pip in forex is typically $10. So, if EUR/USD moves up by 10 pips, you'd make $100.
Mini Lot (10,000 units of the base currency): For a mini lot, one pip is usually worth $1. A 10-pip move would mean $10.
Micro Lot (1,000 units of the base currency): For a micro lot, one pip is typically worth $0.10 (ten cents). A 10-pip move would mean $1.
If you want to calculate it manually, use this formula:
Pip Value = (Pip Size ÷ Exchange Rate) × Lot Size
- Pip Size: 0.0001 for most pairs, 0.01 for JPY pairs
- Exchange Rate: Current price of the currency pair
- Lot Size: Units of your position (e.g., 100,000 for standard)
Exchange Rate = 1.2000
Pip Size = 0.0001
Lot Size = 100,000 (Standard)
Pip Value = (0.0001 ÷ 1.2000) × 100,000 = $8.33
📌 In this case, 1 pip = $8.33, slightly lower than $10 because of the exchange rate.
A
pipette is a fraction of a pip, specifically
one-tenth of a pip. Some brokers use 5-digit pricing instead of 4-digit. This helps give more accurate price quotes.
The main difference in pip vs pipette is precision. While traders usually focus on full pips, pipettes offer more exact pricing, especially in fast markets. For Yen pairs, a pipette is the third decimal place (e.g., 110.501).
Let’s look at this:
EUR/USD = 1.10504
The last digit (4) is the pipette.
In this case:
- From 1.10500 to 1.10510 = 1 pip
- From 1.10500 to 1.10501 = 1 pipette
Pipettes are helpful for brokers to offer tighter spreads and more precise pricing. But for most beginner traders, focusing on pips is enough at first.
Leverage lets you trade big with a small amount of money. It’s a powerful tool in forex trading, but it’s risky too. With leverage, you can control a large trade, like $10,000 with just $100 at 1:100 leverage. This makes every pip movement matter more.
Pips measure price changes, and leverage doesn’t change their value directly. But it boosts your trade size, so each pip move hits your account harder. For example, a 10-pip move in EUR/USD with a $10,000 trade could mean a quick profit or a painful loss, depending on the market’s direction.
Use leverage carefully to avoid big losses. Always check how much a pip is worth for your trade size before jumping in. Knowing your pip risk keeps you in control and helps you trade smarter.
Even tiny movements in forex trading matter a lot, especially when dealing with large sums of money. When you are
trading pips, every single pip movement directly affects your money. If your currency pair goes up by 10 pips, you make money; if it goes down, you lose money.
For people who do day trading, where they make many quick trades, pips are incredibly important. What does pips mean in day trading? It means day traders rely on small pip gains that add up over time. Pips help them set clear goals for buying and selling, allowing them to manage risks and aim for profits. Pips also help traders compare different currency pairs, as a 50-pip move always represents the same amount of price movement, no matter the pair. This helps traders evaluate their strategies across various markets.
So, what is a pip? It’s one of the most basic but powerful tools in forex trading.
You've learned
what is a pip,
how pips work in forex,
how to calculate pip value, and how they relate to other important terms like pipettes, spreads, and leverage.
By grasping these concepts, you're building a strong foundation for your forex trading journey. Keep practicing, keep learning, and pay attention to how these small price changes affect your trading account. The more you understand pips, the better you'll become at navigating the exciting world of forex.
